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Can I qualify for business debt relief if I still have some cash flow?

This is a great question that a lot of small business owners are asking these days. Times are tough, and even if your business hasn’t completely dried up, you may still be struggling under a mountain of debt. The good news is that there are options out there to help relieve some of that debt burden, even if you still have some cash coming in.

The most common form of business debt relief is filing for bankruptcy. There are a few different types of bankruptcy filings, but the two most relevant for small businesses are Chapter 7 and Chapter 11. Chapter 7 is what’s known as a “liquidation” bankruptcy – essentially you’re wiping the slate clean, closing up shop and selling off assets to pay creditors. This is a last resort when the business is truly no longer viable.

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Chapter 11 on the other hand is a “reorganization” bankruptcy. The business stays open while working out plans to restructure debts and payments. This involves negotiating with creditors to reduce debt amounts or change payment terms. The goal is to create a more manageable situation that lets the business get back on its feet.

So if you still have some cash flow coming in but are drowning in too much debt, Chapter 11 could be a good option. The court essentially hits pause on collections and lawsuits while you work out the details of reorganization. This stops the bleeding and gives you breathing room to reshape the fundamentals of the business.

There are definitely strict qualifications and hoops to jump through, however. You’ll need to put together detailed financial records and projections, and prove to the court that the business is still fundamentally viable. It’s complex and you’ll absolutely need an experienced bankruptcy attorney to guide you through the process.

The Small Business Reorganization Act of 2019 also created a streamlined version of Chapter 11 specifically designed for small businesses. This “Subchapter V” bankruptcy has fewer bureaucratic hurdles and reporting requirements. It was created to make the process more accessible and affordable for true small businesses. So that’s something to explore with your attorney.

Outside of bankruptcy, there are some other potential options for debt relief like debt consolidation or settlement. This is where you work directly with creditors to combine multiple debts into one overall payment, or negotiate reduced lump sum settlements on what you owe. If you can scrape together enough savings to offer meaningful lump sums, creditors may be willing to settle for less than 100% of what you owe in order to get something versus risking bankruptcy where they may get nothing.

Nonprofit credit counseling agencies like the National Foundation for Credit Counseling may also be able to help negotiate with creditors on your behalf. They have experience creating debt management plans. Just beware of scammers claiming to be credit counselors as well.

The bottom line is don’t wait until it’s too late. If your business is facing unsustainable debt, start exploring relief options right away before it’s a crisis situation. Know the qualifications and talk to both a bankruptcy attorney and a small business financial advisor to understand all your options. With the right plan, you may be able to qualify for debt relief even with some cash flow remaining. Don’t lose hope – you can get your business back on track!

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